TRIS Rating has affirmed the company rating of I.C.C. International PLC (ICC) at “AA” with “stable” outlook. The rating reflects the company’s position as Thailand’s leading distributor of lingerie, men’s apparel, and cosmetics; a diverse portfolio of products and brands; intra-group supply chain; and nationwide distribution coverage. The rating also takes into consideration its conservative financial policy. However, the rating is constrained by the low level of profitability typically associated with trading companies. Limited ability to grow the operating cash flow would constrain ICC’s financial flexibility and negatively impact the company’s credit rating. The “stable” outlook reflects TRIS Rating’s expectation that ICC will continue to maintain its strong market positions in its major product lines, and be able to improve its cash flow generation ability. The minimal growth over the long period has weakened the company’s financial profile and will negatively impact its credit profile.
ICC is one of Thailand’s key wholesalers and distributors of consumer products, particularly lingerie, apparel, and cosmetics. The company offers more than 80 brands, covering international licensed brands and its own brands. The international brands under the ICC umbrella, such as Wacoal, Arrow, Lacoste, Daks, Guy Laroche, and ELLE, are well-accepted by Thai consumers. ICC’s products are available in department stores, discount stores, and shops, accounting for over 3,100 points of sales nationwide. The long-experienced management team, together with the support provided by suppliers within the Saha Group, help maintain ICC’s market-leading positions in its key product categories.
The three major contributors to ICC’s top line are the lingerie, men’s apparel, and cosmetics product lines. During the last three years and the first quarter of 2013, the men’s apparel line contributed 27%-29% of total revenue, the lingerie line generated about 25%, and the cosmetics line contributed 12%-13%. ICC dominates the middle- to high-end lingerie segment, with about 60% share in 2012, as measured by sales of all brands through department stores. Wacoal has remained the leading lingerie brand for over a decade, with 53% market share in 2012. Although Wacoal’s market share has gradually declined due to aggressive competition, its share is much higher than the second-largest competitor. The Wacoal product line alone has generated 20%-22% of ICC’s total sales during the last three years. The strength of ICC’s men’s apparel segment is derived from the Lacoste and Arrow brands, which contributed 10% and 8% of ICC’s total sales, respectively. BSC Cosmetology, ICC’s own brand, is the core product brand in the cosmetics segment. Annual sales were Bt750-Bt850 million per annum during the past three years.
ICC’s financial profile and liquidity remain strong, underpinned by its conservative financial policy and diverse source of income. ICC reported total sales of Bt13,677 million in 2012 and Bt3,451 million for the first three months of 2013, accounting for a 6.6% and 3.4% year-on-year (y-o-y) growth, respectively. The growth was softer than 13.6% reported in 2011. The slower growth pace reflected the weaker economic environment owing to rising household debt, high cost of living, and domestic political uncertainty. As the nature of trading company, ICC’s profitability is fairly thin. Operating income before depreciation as a percentage of sales ranged from 5%-6% each year during 2009 through the first quarter of 2013. The profit margin was continually pressured by the increasing marketing expenditures, required to counter the intensifying competition. ICC’s selling and administrative expenses rose by 13% in 2012, and by 15% y-o-y for the first quarter of 2013. Its proportion rose from 32.6% of total sales in 2011, to 34.5% in 2012, and 35.4% for the first quarter of 2013. The return on permanent capital ratio has gradually dropped since ICC has continued to build up its equity base over the years while profitability remained low. The return on permanent capital ratio was about 8% during 2011-2012. Going forward, ICC faces challenges to boost sales and enhance its ability to generate operating cash flow.
Funds from operations (FFO) has been fairly stable but was considered relatively softened over the years. In 2012, ICC generated FFO of Bt1,083 million which included Bt108.5 million of gain from sales of assets. For the first three months of 2013, FFO stood at Bt200 million. The return on permanent capital ratio has gradually dropped since ICC has continued to build up its equity base over the years while profitability remained low. ICC’s liquidity profile remained strong, mainly supported by low leverage. The FFO to total debt ratio was 176% in 2012 and 35.1% for the first three months of 2013.
ICC remained debt-free during 2002 to 2011. However, in 2012, ICC raised short-term debt to fund its working capital needs. ICC’s inventory level increased significantly to support growth target. The inventory turnover climbed from 158 days in 2010 to 169 days in 2011 and 194 days in 2012. As a result, ICC incurred the short-term debt of Bt464 million in 2012 and Bt419 million at the end of March 2013. ICC has also made some guarantees to related companies to strengthen its supply chain. The total amount of outstanding guarantees has remained at Bt152 million since 2009. Despite the increase in debt, its total debt (including guarantee) to capitalization ratio was considered low at 3.5% at the end of March 2013. ICC’s leverage level is expected to rise in the medium term, to support its planned capital expenditures of about Bt1,200 million during 2013-2015. The budget is higher than usual as ICC plans to renovate and expand the His & Her outlets, purchase land and building, and build new office building. TRIS Rating expects ICC to continue its conservative financial policy while improving inventory management strategies to reduce surplus or obsolete inventory.
ICC has invested in the property development business by utilizing its non-performing assets (NPAs). In TRIS Rating’s view, the company will be exposed to higher risk as the property development industry is intensely competitive and more sensitive to economic cycles. At present, ICC’s capital injection remained small. Any future investments are expected to be prudently considered so as to maintain ICC’s financial strength and ample liquidity at all times.
ICC and other Saha Group companies have complex cross-holding structures. TRIS Rating expects that all transactions between ICC and other companies in the group should conform to the regulations of the Stock Exchange of Thailand (SET) and the Securities and Exchange Commission (SEC).
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